Shareholder Value
We consider the measure of our success to be how well we increase The St. Paul's value for our shareholders on a long-term basis. Our strategy is to achieve a distinct competitive advantage by providing customer-focused products and excellent service on a worldwide basis, resulting in a superior long-term return for our shareholders, despite the volatility inherent to our business. Unfortunately, 1998 was a clear example of that volatility.
Our strategy enables us to be a value-driven company, with a long track record of rewarding long-term investors. Two recent actions further highlight our commitment to creating long-term shareholder value.
In February 1999, our board of directors increased our dividend rate for the 13th consecutive year. The new annual dividend rate of $1.04 per share represents an increase of 4 percent over the previous rate. We have paid cash dividends without interruption for 127 years. Over the past five years, our dividend has grown at a compound annual rate of 6.8 percent, exceeding the estimated 2.4 percent in the Consumer Price Index over the same period.
In November 1998, our board of directors authorized the repurchase of up to $500 million of our outstanding common stock in the open market and through private transactions. From that point until March 1, 1999, we had repurchased 8.9 million shares at a total of $295 million.
We have explained how strong and conservative loss reserves benefit policyholders; there is also a very real benefit for investors. When reserves realistically reflect the ultimate liability for losses, investors can have greater confidence in the quality of earnings.
Finally, it is important to note that The St. Paul aligns the interests of management, employees and shareholders. Two actions were taken in 1998 to supplement already-existing management incentive plans and an employee stock ownership program.
The company instituted "Global Options," a broad-based stock option compensation program for most employees worldwide. Global Options is based on two measures of business success -- return on equity and the price of The St. Paul's common stock. "Performance Shares" is the company's new preferred stock program for U.S. employees, with stock awarded when the company achieves its return on equity goal. Employees of The St. Paul now own 9 percent of the company's stock.
In our industry, the competition is tougher and the stakes higher than ever. But we believe we have the strategy, management, market presence, industry expertise and financial strength to continue to produce long-term rewards for St. Paul shareholders..
